Security First Network Bank, the Internet pioneer, is looking more like a traditional bank as it adopts the principles of its new owner, Royal Bank of Canada.

In seven months under the Toronto bank's wing, Atlanta-based Security First has added such conventional banking trappings as more formal risk management, compliance, auditing, and human resources functions.

It has hired experienced people to manage those functions, plus a chief financial officer, a senior community banker to handle Community Reinvestment Act issues, and the services of three consulting firms.

It has also created a six-member board that includes three from Royal Bank's board.

Security First's expansion and reorganization reflect a recognition that beneath the hype, an Internet bank confronts all the risks and regulatory issues of regular banking.

"It's not all about technology," said David Noble, president and chief executive officer. "It's about running a bank."

The number of accounts has remained flat at about 15,000 during the transition period, but now Security First is poised for action. "We're ready to start growing the bank," Mr. Noble said.

Last week it announced a no-fee checking account that pays 6% interest until Jan. 1, 2000, with a minimum $100 deposit. The first target is 100,000 new customers. At that point the focus would turn to attracting the next "manageable bite" of customers, Mr. Noble said.

Royal Bank intends to use Security First to attract U.S. customers, having opted against acquiring branches in the United States. It also plans to use the Internet bank to accommodate Canadian on-line banking customers who head to the States for the winter.

Royal Bank has already spent or committed more than $100 million in Internet banking and brokerage efforts and expects "a significant increase" over the next four to six months, Mr. Noble said.

That $100 million, though similar to other large banks' investments in Internet banking, far exceeds spending on other Internet-based banks of Security First's size. For example, Sovereign Bancorp of Wyomissing, Pa., which hopes to attract 250,000 households over three to five years to a national Internet-based bank it is launching, has budgeted $5 million for the effort.

Christopher Musto, senior analyst at Gomez Advisors Inc., pointed out that Royal Bank can look for payback from across its Canadian operations.

The total includes $20 million to buy the on-line bank; a $5 million equity investment in its former technology affiliate, Security First Technologies Inc.; and a $50 million, five-year software contract with that company.

Technology projects already completed include the integration of Security First Network Bank's platform with the Royal Direct platform for Canadian Internet banking customers. Now Royal Direct users can gain access to their accounts via Security First Network Bank when they are in the United States.

Future investments will be aimed at improving on-line customer service and account opening and fulfillment processes. Also looming are decisions about branding and marketing strategy.

"Carving out a new, powerful brand in the U.S. is not an easy matter," Mr. Noble said.

As a first step, Royal Bank's lion symbol has been added to the Security First Network Bank logo. But everything about the brand, including the name, is under consideration, Mr. Noble said.

Mr. Musto, the analyst, said Royal Bank has the opportunity to create a new identity. "SFNB is not a big brand," he noted.

Charles Hieronymi, director, financial services group at Dove Associates Inc., said it will be "fascinating" to see how Security First creates a brand in the United States.

The bank, which has a conventional branch office in Atlanta, is adding one this month in Clearwater, Fla. It may open others where the demographics favor on-line banking.

Converting Royal Bank's policies to the U.S. environment and to a small- bank model has resulted in a "50-page, high-level document with an action plan" that covers everything from basic risk management to how to open a branch to the handling of vault cash, Mr. Noble said.

"It's not so much the spending, it's the implementation of policies" that is diverting resources, Mr. Noble said.

Mr. Noble, a 13-year Royal Bank veteran, said he no longer worries that this attention to detail is a competitive disadvantage.

"We've actually understood the power that a big bank could bring," he said. "We can piggyback off that."

A main objective is to operate the bank with low risk. Though there is risk in launching a brand in the United States, Internet banks do not face more risk than conventional ones, he said.

One unique challenge for Internet banks is validating the identities of depositors. Using technology from Equifax, Security First Network Bank expects to cut losses from deposit fraud-now less than 10 basis points of deposits- by 90%.

Mr. Noble said never having worked in consumer banking or technology helped him get his job.

His years with Royal Bank have included positions in corporate banking and commercial lending and a stint as assistant chief economist. Most recently he was based in Hong Kong, searching for strategic investments in Asia.

That broad background and lack of preconceived notions about Internet banking made him a strong candidate for running Security First, he said.

It is "the best job I've ever had," Mr. Noble said. "By far."

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